Hut 8 Corp

F:V71

Earnings Call Transcript 2021-Q2

[Operator]

Welcome to the Q2 earnings release conference call. My name is John. I'll be your operator for today's call. [Operator Instructions] Please note, the conference is being recorded. And I will now turn the call over to Shane Downey.

[Shane Downey, Chief Financial Officer]

Thanks, John. Good morning, everyone. Yes. So good morning to the 2021 Second Quarter Earnings Call for Hut 8 Mining Corp. I'm joined this morning by Jaime Leverton, CEO of Hut 8. We achieved and refined many reporting initiatives during my first full quarter as CFO. As the digital asset industry is still very much in its infancy, IFRS accounting standards do not directly address digital asset reporting. As part of ongoing management review and analysis and in consultation with our auditors, we made an accounting estimate change as well as a balance sheet classification change in Q2, both of which I will address below along with Jaime and Sue, and the rest of our management team, I look forward to additional engagement with our active shareholder base. With that said, I'll start out with some short disclaimer language and then jump into a summary of our Q2 results. I'll then turn things over to Jaime, and then we'll open up for some Q&A. In addition to the press release issued earlier today, you can find our financial statements and MD&A on both SEDAR and shortly on our website at hut8mining.com. Unless noted otherwise, all amounts are referred to are denominated in Canadian dollars. I'd like to remind you that comments made during this call may include forward-looking statements within the meaning of applicable securities legislation regarding the future performance of Hut 8 Mining Corp. and its subsidiaries. These statements are current expectations and as such, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include, but are not limited to, the factors described in the company's annual information form for the year ended December 31, 2020. At this time, I will walk through our financial highlights for Q2 2021. Start with revenue. Another record-setting quarter with respect to revenue driven by strong mining activity. Total revenue for Q2 2021 was [ $33.5 ] million compared with $9.2 million in the prior year quarter. We earned $31.4 million from mining activities as we mined 553 new bitcoin at an average of approximately $56,700 per bitcoin. This result is up significantly versus Q2 2020 due to a combination of, first, increased average hashrate, which is up by 65% year-over-year for Hut 8. 0.68 exahash in Q2 2020 to approximately 1.12 exahash in the second quarter of 2021 as well as, of course, bitcoin price appreciation year-over-year. Our hosting line of business continues to grow as well, adding over $2 million of revenue as we added a second customer in late May. Moving to operating costs. Cost of revenue for Q2 2021 was $16.8 million compared to $15.5 million in the prior year quarter. Modest increase is the net result of an increase in site operating costs, mostly electricity with the decrease in depreciation expense. The decreased depreciation expense was largely a result of a revised estimated useful life of the company's infrastructure assets from 4 to 10 years. Site operating costs increased due to Hut 8's continued expansion, specifically the addition of miners to our fleet. The cost of mining each bitcoin for Q2 2021, excluding depreciation expense, was approximately $24,900 compared with approximately $27,000 in Q1 of this year. I want to bring emphasis to the fact that our cost of mine figures are fully loaded costs, inclusive of electricity, associated T&D and fees as well as personnel, network monitoring, equipment repair and maintenance costs. Moving to general and administrative costs, excluding noncash share-based compensation expense of $1.8 million, G&A costs were $6.9 million compared with $1.3 million in the prior year period. While a portion of the increase stems from the strategic investment into building out a larger and deeper pool of executives and managers. Much of the year-over-year increase is a result of various capital markets' initiatives and the new management team's commitment to best corporate practices. Both of these streams resulted in considerable involvement of external legal counsel. Further, as our shareholders are aware, Hut 8 was the first Canadian digital asset miner to successfully uplifted the NASDAQ, which also resulted in considerable listing fees, regulatory costs and legal fees. The fact that we are ultimately successful in not only uplisting to the NASDAQ, but to the NASDAQ top tier, the NASDAQ Global Select market speaks to the company's commitment to excellence. We expect our G&A cost to normalize over the balance of 2021, though continued short-term volatility is expected as the company continues to experience significant growth. To comment quickly on finance income. The income earned from our bitcoin lending arrangements are reported in finance income. We signed a new lending arrangement with Galaxy Digital LLC during the quarter and now has 2 active lending agreements. These lending agreements allow the company to continue to leverage our bitcoin holdings and generate additional fee at cash flow while supporting our HODL strategy. We earned $0.8 million of finance income during the quarter and have earned $1.3 million year-to-date from these lending arrangements. We recorded a net loss of $20.4 million for Q2 2021 compared to net income of $2.8 million in Q2 2020. This result was driven by a combination of $22.9 million unrealized revaluation loss related to classification change of digital asset lending arrangements as well as a $6 million deferred tax expense. And just to be clear, both of these amounts are noncash items and neither are of particular concern or interest to us as a management team, neither being reflective of core operating results. The core reason for the mark-to-market losses in Q2 is simply the downward price action of bitcoin from March 31 to June 30, which was a considerable move from approximately USD 59,000 at March 31, down to approximately USD 35,000 at June 30. The $22.9 million unrealized revaluation loss in Q2 serves to effectively unwind the unrealized gain recorded in Q1 2020, specifically related to digital assets subject to lending arrangement. This was driven by an ongoing assessment by management and consultation with our auditors whereby it was determined that classification of the lending arrangement is consistent with our other digital assets, those held in custody is most appropriate, which results in an unrealized gain or loss being recorded through other comprehensive income, part of the equity box on a net of tax basis as opposed to through the P&L. Given the movement of the price of bitcoin for year-to-date Q2, this was a modest $3.3 million unrealized gain, of which $2.5 million went through OCI, net of $800,000 of deferred tax recovery. So I would bring emphasis really to the fact that on a year-to-date basis, we have positive net income of $15.1 million. The $6 million deferred tax expense referred to above, serves to effectively reverse the Q1 recovery of $6.8 million, net of that $0.8 million deferred tax recovery I mentioned a moment ago. Turning to adjusted EBITDA, Hut 8 achieved adjusted EBITDA of $14.4 million for Q2 2021 compared to just $65,000 in Q2 2020, driven fundamentally by bitcoin mining profitability in the period as well as our increased average hash rate as discussed previously. Turning to the balance sheet. Fundamentally, our balance sheet remains healthy. We raised $115 million of capital in June 2021, supplementing the $77.5 million raised in January. The proceeds from this latest raise will continue to be invested in the growth of the company through the acquisition of new mining equipment, including the previously announced NVIDIA and MicroBT orders as well as the build-out of our third mining location in Alberta. Our bitcoin holdings are marked at fair value and totaled $166.1 million, reflecting 3,824 bitcoin as at June 30. This balance consists of 1,824 bitcoin holding custody and 2,000 bitcoin subject to lending arrangements with Genesis and Galaxy. We continue to emphasize our long-term HODL strategy and did not sell any bitcoin during the quarter. And with that, I will turn things over to Jaime.

[Jaime Leverton, CEO & Director]

Thank you, Shane. So right off the top, I want to say, I'm very excited about the progress we've been making at Hut 8. We were obviously incredibly busy in Q2, executing on our diversified revenue strategy, finalizing cutting-edge power agreements, leveraging key relationships to procure new hardware, expanding our market reach and continuing to be the leaders in self-mine bitcoin held on the balance sheet. Our diversified revenue strategy matters. It helps us capture more upside in bull markets while offering some downside protection during bear markets. Hut 8 continues to strategically emphasize its HODL strategy, taking active steps to generate Canadian and U.S. dollars to help fund operating expenses and limit the selling of bitcoin. As Shane mentioned, during the second quarter, 100% of our South mine bitcoin was deposited into custody. I also wanted to mention based on current network dynamics, we anticipate daily settlement once all contracted equipment in hashing will equate to 20 to 25 Bitcoins per day. Of course, one of the main highlights for us this quarter was successfully becoming the first Canadian digital asset miner to list its common shares on the NASDAQ. A project the team has been headed down on since very early in my tenure. This achievement gives the company access to a substantially increased pool of investors, both for purposes of future capital raises and providing improved liquidity to current and future shareholders. Concurrent with existing Hut 8 closed a public offering on June 15, as Shane mentioned, raising gross proceeds of CAD 115 million to provide flexibility that faces market uncertainty for the company to continue making strategic investments and executing on meaningful and cutting-edge equipment opportunity. We were able to seize on an opportunity to pick up 1.08 exahash equipment and an incredibly competitive price of approximately $44 of terahash delivering in Q4 of this fiscal year. We finalized our investment in 10,000 high performance NVIDIA CMPs, which will initially be deployed as we've discussed to mine at the Ethereum network while settling in bitcoin. Leaders cutting-edge cards that were not available on the open market and will consume only 3.5 to 4 megawatts of power, while operating at approximately 1,600 gigahash. We anticipate settlement and this plan will result in 2 to 3 Bitcoins per day using this method. We also ordered new Dell server hardware to be used in conjunction with the cards, all of which is enterprise grade and we look forward to beginning installation of this new equipment later this month. The deal is significant for Hut 8 as it unlocks enterprise quality hardware, technical support and a plethora of monitoring and control tools for the company while we pursue additional excellence in the technology capabilities of our on-site staffing crew. We also invested in the power purchase agreement, as previously discussed, building out a third facility in Alberta with incredibly compelling power rates. And finally, we launched several ESG-related initiatives, including establishing a robust recycling program to limit waste volumes sent to landfill, the installation of low emission LED lighting throughout all of our facilities and the electrification of our suite of on-site vehicles. Our focus for the second half is all about execution. Executing on the purchases that we've made, on the expansion of our facility is continuing to bring down our average cost to mine bitcoin and increasing our operational efficiency across the fleet. Our new power deal will be instrumental in reducing the costs associated with our primary operating cost of power and continuing to expand and upgrade our fleet with new ASICs and GPUs once fully installed, will also provide additional efficiency and further cost per coin reduction. So as always, we thank you so much for your support. And we'll now turn it over to John to manage Q&A. Thank you so much.

[Operator]

[Operator Instructions] And our first question is from George Sutton.

[George Frederick Sutton, Partner, Co]

Congratulations on your uplist. So curious why 2,000 bitcoin are loaned out given the much larger size that you self mined? Is there a limiting factor to how much you can actually put into the market?

[Jaime Leverton, CEO & Director]

Great question, George, and good morning. We only started embarking on this yield strategy earlier this year, and it started in January with the opening of our initial yield account with Genesis, and we put 1,000 bitcoins into that account at that point. And then based on the success and our comfort with the execution of that program, we went on and entered into another arrangement in May with Galaxy, with another 1,000 bitcoins. And then as you talked about, the remainder of our bitcoins remained in custody. So this serves really serves 2 purposes. Obviously, earning fee-based income for a portion of the bitcoin we hold on our balance sheet, while we continue to believe we'll take advantage of appreciation of the cost -- of the price of bitcoin over time. It also diversifies the risk of where that bitcoin being held. Historically, it was only held with our custodian. So we think the strategy is the right one for an incremental revenue stream as well as risk diversification of our holding. We will continue to explore other avenues for potentially incremental yield opportunities. But at this point, we're still early days in this program and very much interested to see where it may evolve over time. So hopefully, that answers your question, George.

[George Frederick Sutton, Partner, Co]

That does. So as we look at -- and it's nice to see your cost per coin coming down quarter-over-quarter. Can you just give us a sense of directionally where do you see that ultimate cost per coin with the new power arrangements, with the new miners, with the new difficulty adjustments where do we ultimately get to from a cost per coin?

[Jaime Leverton, CEO & Director]

George, I have not been able to build the spreadsheets big enough to solve for all of the variables that go into answering that question. But absolutely, if you want to build one for me, we can come back to it. There's just so much at play, of course, and we don't want to. It's really difficult to predict that. And Shane did go into some detail about what goes into our cost per coin. It is a fully loaded cost per coin. And so I think that's important for people to recognize all of the inputs that go into that number for us based on IFRS accounting. Shane, I don't know if you want to add anything?

[Shane Downey, Chief Financial Officer]

Yes. No, I don't think much add in terms of how we build up the calculation itself, which is to be extremely simple, frankly, and in line with IFRS as Jaime just commented. And yes, I would echo the sentiment that's the modeling and building out of specific assumptions as to where we expect price per bitcoin to land in the future is challenging. So it's difficult to put a specific number on it. But as Jaime has commented earlier, the combination of getting stood up at a second location in Alberta, where we've financed on a...

[Jaime Leverton, CEO & Director]

Third.

[Shane Downey, Chief Financial Officer]

Excuse me, a third location in Alberta. Look we'll be compelling from a power price perspective at that location for sure, relative to our other locations. And then the NVIDIA chips. I guess, just generally, the more efficient miners coming on board, which has been happening, and we'll continue to accelerate throughout the year. And then really specifically like the 3.5 to 4 megawatts of consumption that we expect from the NVIDIA chips is extremely efficient from a power perspective relative to certainly any of our ASIC miners today.

[George Frederick Sutton, Partner, Co]

Got you. I certainly appreciate the difficulty.

[Jaime Leverton, CEO & Director]

The other thing I'll add or just remind you of, George, is we -- because we are one of the oldest publicly traded miners in the space, we've been around since early 2018 actively participating in mining in this market. And we do have a diversified fleet, which means a significant portion of our fleet is of a previous generation, and therefore, it's less efficient, but it is fully depreciated. And so from a margin perspective, that's something to be aware of and to note the difference. We have fully depreciated equipment that's very profitably mining today. And so it does play into the cost per bitcoin because depreciation obviously isn't factored into that equation.

[George Frederick Sutton, Partner, Co]

Got you. One last question, if I could. With the Chinese miners leaving the market, the difficulty adjustments didn't get adjusted right away. How much did that impact you negatively? And how much does that benefit you now? Is there a way to quantify that?

[Jaime Leverton, CEO & Director]

Well, the majority of the difficulty adjustments resulting from that exodus didn't happen until the beginning of July. So there really isn't much benefit, if any, shown in our results for Q2. The majority of Q2 was at that much higher global hash rate level. So the benefit of that difficulty adjustment and obviously the increased production that we saw as a result of it will be seen in our Q3 results, which will be in October.

[Operator]

Our next question is from Kevin Dede.

[Kevin Darryl Dede]

Shane, thanks very much for your prepared remarks. Insight on the accounting and the fluidity in this environment is graciously appreciated. Maybe you could just talk a little bit about the negotiations that you had with your attorneys and accountants and sort of rearranging the P&L and balance sheet.

[Shane Downey, Chief Financial Officer]

Yes. I don't mean happy to discuss that comment a bit further. Well, happily, I can say, nothing -- none of that whatsoever had anything to do with discussion with attorneys or lawyers. The -- and yes, in terms of rearranging balance sheet that fundamentally the change that we've made is to classify bitcoin subject to lending arrangements. So that's the -- as at June 30, the 2,000 bitcoins that Jaime commented on earlier. That's being classified now rather than the gains and losses associated with it flowing through the P&L, which is what happened in Q1, any gains or losses associated with bitcoin lending arrangement will flow through OCI. So through the equity box in the balance sheet on a net of tax basis, which is the exact same treatment that gets applied to all other digital assets that are held in custody. Well, I won't get too far into -- underneath that is an IFRS sort of analysis through the IFRS 9 world applies to financial assets and liabilities, which in Fiat world would very much be where any kind of loan would get classified. The digital assets fundamentally do not fall into IFRS 9. And so accordingly, we're sort of staying conceptually within IAS 38 intangible asset accounting. So that explains it. It's really truly an accounting classification change only. No impact on operations, no impact on cash. And when you look at the year-to-date P&L on balance sheet, that sort of noise that's there from a Q1 perspective and then a Q2 perspective goes away.

[Kevin Darryl Dede]

So did I understand you correctly, Shane, and thinking that your full bitcoin holdings are treated that way, not just with 2,000 lent.

[Shane Downey, Chief Financial Officer]

Correct. That's exactly right.

[Kevin Darryl Dede]

Okay. Jaime, congrats on the Validus deal. I was wondering if you could add a little more color. You know me, I'm okay with tech things, not so good with energy things. So could you help me understand how your third location will accumulate gas, will ensure -- my understanding is flare, ensure that it's consistent in its quality, ensure that will be consistent in its delivery, give us some sort of idea on the number of wells that you needed to source. Congratulations on the pricing there. But any more color that you can add on. I mean, clearly, Drumheller and Medicine Hat are fine, right? Because we've seen them operate for years. It's just not so clear what might happen with the new location. So any comfort you can give us on that, I think it would be gratefully appreciated.

[Jaime Leverton, CEO & Director]

So I'm trying to think through the best way to answer your question, Kevin. We -- the site is a new site that is built behind the fence, just meaning it's not a grid connected site. It will be a site stood up primarily using natural gas as the energy source and will be directly connected to the turbines that ultimately produce the power and the power is being produced specifically for our use and our use alone. The arrangement has an uptime commitment from Validus of 95% uptime. And again, because we're directly connected and the rates are well understood because they're part of the contracts they're fixed at CAD 0.0274 plus or minus 10% based on an annual adjustment mechanism. So we know the cost. And again, the site is purposeful specifically for our use, we'll start -- we'll start with Phase 1 being 30 to 35 megawatts, which we expect to be stood up in operational by the end of Q4 of this year. And then yes, the reliability and performance of the site is what Validus has contractually obligated to perform, and they have a long history of working in these environments. With respect to the amount of flare gas included in the natural gas in use, that detail has not yet been disclosed as we're working through it. So it will predominantly be of course, in natural gas, right, because it is behind the fence generated power using natural gas as the source. Hope that answers your question.

[Kevin Darryl Dede]

Yes, that helps tremendously. I mean, it was kind of -- we're trying to clear up a black box, right? So any light on it is great. The 30 to 35 you'll have by the year end will get you -- how much of that additional 1.3 exahash that you plan on adding to your network? And then how much more power will you need to get this to the full 2.7?

[Jaime Leverton, CEO & Director]

So it will be -- we've ordered 1.08 incremental exahash, as we mentioned, from MicroBT. The 80 petahash is already on site now. And then the exahash will deliver between October and December. That's the expected delivery of that exahash. And that exahash will use the full 30 to 35 megawatts, about 35 megawatts for an exahash of compute from MicroBT using the equipment that we've ordered. So with what we have actively in production today and then coming online with that 1 exahash ordered for MicroBT as well as the NVIDIA cards that are coming online, just that contracted equipment alone gets us to the 2.7 exahash.

[Kevin Darryl Dede]

Okay. So with -- I guess just to sort of sum up, in my little brain, with that new 35 megawatts you'll be able to support your full 2.7 target?

[Jaime Leverton, CEO & Director]

That's right.

[Kevin Darryl Dede]

Okay. Okay. And it seems that you'll have the 35 up by the end of the year and then -- would it be fair to assume the full 2.7 could be fully deployed by the end of the March quarter? Is that a fair assumption?

[Jaime Leverton, CEO & Director]

That is a fair assumption. Certainly by the grace of God and supply chain willing that is our target.

[Kevin Darryl Dede]

I think more by the grace of an Alberta winter, Jaime.

[Jaime Leverton, CEO & Director]

We love Alberta winters, Kevin. That's how we take advantage of our 3 air cooling. The miners absolute risk during Alberta winters. We love Alberta winter.

[Kevin Darryl Dede]

Okay. So the -- for full deployment at that site, you all need to supply the infrastructure down transformer, or is all that -- yes, is all that Validus or is that on you?

[Jaime Leverton, CEO & Director]

That's all. So we are working with Validus as a partner in building out the site and all of that infrastructure has already been ordered, all the long lead items are already ordered. And we've got a full work back schedule in progress.

[Operator]

And our next question is from [ Ali Al ].

[Unknown Analyst]

Good to hear your voices, Jaime, Shane and so on the other team members. I was just concentrating on the question of the previous colleague around Validus. And 1 to 2 questions. Now the site set up cost of $25 million. So if I may ask, the cost per watt or per kilowatt would be in addition to the overall setup of $25 million. For how long the site is going to be operating under Hut 8, is there a lease agreement or would the site be owned by Hut 8 eventually?

[Jaime Leverton, CEO & Director]

So the $25 million that you're referring to, I believe this was -- is the amount related to the rate slide-out. So that's how we have the rate that we do, which then is an ongoing operating cost. And the agreement is an initial 5-year term. And then it has two 5-year renewal options after that. We do not own the land that the site will be on nor do we own the land at any of our sites are on. The land is leased but the infrastructure being, as we just discussed with Kevin, the downstream transformers, the data center containers, that infrastructure is all owned by Hut 8.

[Unknown Analyst]

Great. So if we are to renew for another 5-year term, would that mean another $25 million?

[Jaime Leverton, CEO & Director]

No.

[Unknown Analyst]

Is this something that can be disclosed will be disclosed or -- because again, I do see the agreement on the cost basis. I need to be a little bit clarified around what does it include, but it does not include. Because again, there seems to be a set of costs that needs to be put. You just clarified to the previous caller that it is part of the overall set of that Validus is going to provide eventually. On the previous call, we discussed would there be a need for another set of black boxes that will be procured. I assume that as far as the setup office side is going to be covered by the $25 million, it will be covered. So if we want to continue on this site, given the fact that economically, given the numbers that are published plus Drumheller is becoming our most expensive operating site. If we assume Validus on power. So what would be the cost of continuing Validus later on and maybe looking at more economic, efficient mining sites between Drumheller, Medicine Hat and the Validus one. All in Alberta, given this question.

[Jaime Leverton, CEO & Director]

Well, I think the best way to answer that is we are always having conversations about potential opportunity for future growth.

[Unknown Analyst]

Okay. Fair. That's a very diplomatic answer. The next question is with regard to...

[Jaime Leverton, CEO & Director]

It's very true answer.

[Unknown Analyst]

Yes. The next question is with regard to NVIDIA. If you recall in our previous call, when this was announced, I think the initial time line was 5th of July, then it was expanded to August now on the news today, it's being split into 2 trench August subset and September another subset. On the initial justification or value of the deal, it was said that there was a commitment from NVIDIA for time lines of delivery. Is the delay because of logistic reasons on our side or on NVIDIA side, if this can be explained.

[Jaime Leverton, CEO & Director]

It's actually the supply chain related to the infrastructure, the power infrastructure required to support the equipment. So the -- and we did use a strategic partner, Amulet Hotkey working with Dell to have everything assembled at an off-site location. So that when they arrive to our site, they're fully assembled and the team just needs to plug them in to the appropriate data center container with the appropriate power source. So the cards arrived essentially on time on schedule, and they've spent the last 6 weeks going through the assembly process. And then, as I mentioned, will be delivered -- are in the process of being delivered over the next few weeks, obviously, in phases, they get delivered to sites. And then because they're fully assembled in the chassis, they go right into production. But the delays have been on the -- some of the downstream kind of infrastructure items related to the power that will support the equipment as we plug it in on site.

[Unknown Analyst]

That's clear. The next question is around the hosting business. First of all, thank you for the great performance on this year on the hosting side, quarter 1 than quarter 2 are amazing, securing a new client is really amazing. Would we have a target for this kind of business line to offset the overall Fiat costs associated turning the business. Because again, I could see that we are investing so far around 30 megawatts, 30-plus on this. And if I do a simple mental calculation, if we invested more than what would be the percentage that we are targeting. On one interview or media interlock, I think the 30% of the overall power available was put as a challenge. But again, it was not put in any solid material that we can forecast on our model on the modeling for the company. So would there a targeted number for the hosting business?

[Jaime Leverton, CEO & Director]

There is not a targeted number. It is a conversation that is fluid, and it's really fluid based on the market conditions and market dynamics. And right now, we're comfortable with the mix we're at right now based on the split between self-mining and hosting. And of course, we're at absolutely maximum available power capacity. Hence our excitement to get a new site stood up and ultimately, we'll continue to look for future expansion because it is power that's the limiting factor. And without kind of unlimited built-out power, it's really hard to put a number on what the right mix will look like. But suffice it to say, we -- our diversified strategy that has Fiat-based revenue streams to help support our self-mining activities and allow us to hold more bitcoin is critical and one that will continue to be important to us.

[Unknown Analyst]

Great. With regard to the target capacity for H1 2022 and the current cash position, available warrants and available loans given the yield accounts because I think it came with another $20 million potential loan, almost in 16% interest. Do you see a need for more cash on the business for the remainder of the year?

[Jaime Leverton, CEO & Director]

Well, look, we -- it's something that -- it's an interesting balance, right? We haven't sold bitcoins since early January based on market conditions and kind of our belief of where bitcoin is in it in its cycle, but we have an incredibly healthy balance sheet between bitcoin and cash. So it's -- before January and certainly during the bear market, we were selling the majority of bitcoin you were mining we were selling to fund operations and growth. So I think just the cyclicality and volatility associated with this market has put us in a position where we're always thinking balance sheet first and we'll continue to do so.

[Unknown Analyst]

That's super. One final question. And again, I've thrown this before in the previous call. The remaining for -- the remaining 2,000 bitcoins plus on the balance, when are they going to work for us? I know that they are sitting on the balance sheet.

[Jaime Leverton, CEO & Director]

You know I know you know I love this. Because when we -- when we first kind of even as the leadership team started talking about opening the initial yield account back in January, we really struggled with how the market would react to it and would it be seen favorably and so we kind of -- we thought -- obviously, we thought it was the right thing to do for the business, and we made that move. And then -- and now you kind of fast forward 8 months later and people are just looking for more and more. And so it's quite -- it's been quite an evolution in sentiment around that strategy, and it's one we'll continue to aggressively pursue with Shane now in his chair and comfortably with a full quarter under his belt, we'll spend more time looking at that side of the business. But I absolutely -- I find it fastening that there's so much positive commentary coming about that yield program and both you and Kevin, the previous question after looking for more from us on yield. So that's great feedback, and I really appreciate it.

[Unknown Analyst]

Again, thank you, Jaime, personally and Shane for being there for us for clarifying a lot of things, for being interactive. Again, I would thank the IR team for being responsive to investors' inquiries during the period. It was a tough bitcoin volatility period. And I think the performance of the company is evident that we are in safe hands under your leadership.

[Jaime Leverton, CEO & Director]

Thank you so much. We really appreciate it. It was certainly a nail biter of a quarter with that volatility for sure.

[Operator]

Our next question is from [ Brad Brechtel ].

[Unknown Analyst]

Hello. Thank you, guys, for your time today. I really appreciate the work that you guys have done this last quarter, of course, for all of the business that you're doing. It's kind of funny, the last caller had one of my questions about the revenue sources of having this new customer that came on in May. Is that healthiest network? Or if you can't say, are you looking to get more customers like that for you?

[Jaime Leverton, CEO & Director]

Go -- sorry, expanding into potentially new relationships around yield?

[Unknown Analyst]

Yes. I mean when you say a customer, are you looking for customers that are providing hosting? Or is a customer, someone you're doing yield farming with?

[Jaime Leverton, CEO & Director]

So yes, from a true customer sense of the word, we only have 2 customers. We have 2 hosting clients, and then the yield relationships that we have are with strategic partners, but I think technically, we're the customer in those relationships.

[Unknown Analyst]

Okay. I got you. And then the other part of my question really is a different subject where you're getting these machines to do to pay the ad expenses around the company. Have you considered at all maybe taking it to the next level where you actually pay some of these expenses with your relationships or to your employees in or some other crypto?

[Jaime Leverton, CEO & Director]

So actually, our initial intention in mining in Ethereum network is to settle in bitcoin versus the Fiat so that one kind of clarify there. As for paying employees in crypto, unfortunately, there isn't a mechanism to do that within current Canadian income guidelines and income tax guidelines, although I would love to be paid a bitcoin. So okay, I hope that's something that could become possible. But at this point, there isn't a rational way to make that happen.

[Unknown Analyst]

And then I guess the last thing is, have you talked about MNC or Celsius network at all about either hosting, which they're doing now for mining bitcoin for or for yield farming because they do both.

[Jaime Leverton, CEO & Director]

No, no, we haven't had any conversations.

[Operator]

And we have another question from Kevin.

[Kevin Darryl Dede]

Sorry, Jaime. I'm back.

[Jaime Leverton, CEO & Director]

Kevin, did you miss them. You missed them.

[Kevin Darryl Dede]

Of course, I missed you. I especially missed you in Miami for the record.

[Jaime Leverton, CEO & Director]

I know. That's very true. Very true, even special trips.

[Kevin Darryl Dede]

We'll catch up. We will catch up. Okay. Apologies again for arranging you on SpotX, the third location. Maybe we should call it tray.

[Jaime Leverton, CEO & Director]

It does not have a location name as of yet.

[Kevin Darryl Dede]

SpotX for trade. Can you take that agreement beyond 35? And then sort of in the same way...

[Jaime Leverton, CEO & Director]

The initial agreement is up to 100, and then it has we do have the ability to go beyond that. Yes.

[Kevin Darryl Dede]

Okay. Then sort of the same question on Medicine Hat and Drumheller. I know the agreements are different there, but is there a chance you work with your power suppliers? I know they're both different to increase capacity there. It's all about power now, Jaime.

[Jaime Leverton, CEO & Director]

Yes. No, I think I know you know that equipment now is all about power. And we are at maximum currently available capacity at both Medicine Hat and Drumheller.

[Kevin Darryl Dede]

Okay.

[Jaime Leverton, CEO & Director]

But as I said, one of the things about Alberta, of course, is incredibly energy rich. And I think there's a lot of really exciting innovation happening in the power market and really was in particular with respect to reducing the carbon footprint associated with natural gas significantly. I know we're having a lot of exploratory conversations about what the future of hydrogen could look like and what's the future nuclear could look like. So there's an ample ton of really exciting innovation happening in this space. And Alberta is incredibly focused on greening up their grid as we've talked about before. The Alberta grid is about 20% renewables right now, and they've got a very aggressive target to continue to increase that between now and 2030. They've made significant investments in wind farms and solar farms around the province. So we're really happy that we're in that community, and we're partnered on how we can drive innovation with us being a significant stable offtaker, both for grid connected locations and for operator behind the fence locations like the new one that we're building without us. So we really think there's a ton of opportunity for really exciting strategic conversations and growth in this space over the next 1, 2, 5, 10 years. It's -- I think the power phase is definitely one to watch where new innovations concerned. And this mining is a to-- we're a critical part of that, right, Kevin, like we're the most stable as an offtaker that is completely able to put power back to the grid when it's needed for peak. So it's such a natural symbiotic relationship between power producers and bitcoin miners. And the more we can start working together and really thinking outside the box, that's where 1 plus 1 equals 5.

[Kevin Darryl Dede]

Well, that was the comment I was going to add. And I mean, I suppose the extension of that is your relationships with the assortment of power suppliers through the province and whether or not you can serve a function in load balancing. It just seems to me that there is plenty of power capacity vis-a-vis demand. But I suppose that changes as you and competitors ramp up mining activities. So the next question I have...

[Jaime Leverton, CEO & Director]

I think it evolves. I think it evolves.

[Kevin Darryl Dede]

Okay. The next question, and I promise this will be my last official last one. I too echo sentiments, any way that you can maximize use of assets, shareholders love it. Yes, but I was hoping you might take us through the mechanics of mining Ethereum and the conversion of bitcoin, what are the ratios you use? Is there any set contract there? How should we think about that function as Ethereum prices change, mining difficulty changes there vis-a-vis bitcoin prices.

[Jaime Leverton, CEO & Director]

So we actually had the detail of how the calculations are made so that anybody can look at how we're making them in our FAQ on our website. So we published the frequently asked questions associated with this NVIDIA project and the details are all there. So I will point -- if you haven't seen that, that well I'll point you for that detail.

[Operator]

[Operator Instructions] I have no further questions at this time.

[Jaime Leverton, CEO & Director]

Okay. Well, once again, we want to thank everyone so much for their time, attention and support. It's always a pleasure to be able to connect directly with our shareholders. So again, thank you so much. And we look forward to talking to you again too.

[Operator]

Thank you, ladies and gentlemen. That concludes today's call. Thank you for participating, and you may now disconnect.